Forexpros – U.S. grain futures were higher on Thursday, as a broadly weaker U.S. dollar supported prices ahead of the release of a key monthly U.S. government report on U.S. and global grain supplies.
Agricultural commodities received a lift as risk sentiment improved after closely watched auctions of Spanish and Italian government debt met with solid investor demand and lower yields, easing fears over the fiscal health of the region’s third and fourth largest economies.
The U.S. dollar pulled back from a 16-month high against the euro following the auctions, while the dollar index declined 0.3% to trade at 81.33. A weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.
Meanwhile, traders readjusted positions ahead of the U.S. Department of Agriculture’s closely-watched World Supply and Demand Report due later in the day. USDA January crop reports have, historically, triggered sharp price moves in futures.
On the Chicago Mercantile Exchange, corn futures for March delivery traded at a three-day high of USD6.5763 a bushel, gaining 0.92%.
The USDA report was expected to lower its forecast for U.S. corn stocks to a fresh 16-year low and downgrade crops in Argentina and Brazil, as hot and dry weather conditions in recent weeks damaged crops in those countries.
Elsewhere on the Chicago Board of Trade, soybeans for March delivery rose 0.48% to trade at USD12.0913 a bushel.
Wall Street investment bank Morgan Stanley said in a report that it expected downward revisions to soybean production estimates in Brazil and Argentina of up to 2 million tons each, “owing to developing drought conditions.”
Soybean prices have remained well-supported in recent weeks as dry and hot weather conditions damaged crops in Argentina and Brazil, the world’s second and third largest soy exporters.
South America is major grain exporter and competes with the U.S. for business on the global market. A smaller crop outlook there would likely mean greater demand for U.S. supplies.
Meanwhile, wheat for March delivery jumped 0.8% to trade at a one-week high of USD6.4638 a bushel.
Wheat prices were expected to remain vulnerable as the government report was forecast to show an increase in U.S. winter wheat plantings to the largest in three years.
Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.

Currencies took a hit this morning following weaker U.S. economic data. Risk appetite was dampened by fresh data that highlighted the ongoing challenges in the U.S. economy.  There have been recent improvements in the labor market and other parts of the economy, but unfortunately, a lower unemployment rate has not translated into stronger consumer spending.  We can now understand why Federal Reserve officials have eyed the recent improvements in the U.S. economy with skepticism. According to the latest retail sales figures, consumer spending rose a mere 0.1 percent in December, which is a worrying sign that heavy discounting and the holidays failed to drive enough consumers into the stores.  Excluding gas and autos, sales were even worse - experiencing zero growth in December. The biggest drop off in spending was on electronics and general merchandise but gas stations receipts also revised higher just like the prior month's report because spending picked up the last two weeks of the year. Adding salt to the wound were jobless claims which ticked up to 399k from 375k, which is just within an inch of the psychologically significant 400k level.  If claims rise back above 400k, investors will start to worry about payroll growth falling sharply in January.  USD/JPY remains rock solid - taking the U.S. data in stride but the initial reaction in the other majors reflects everyone's concerns that the end of the year recovery in the U.S. economy was but a mere illusion.
Meanwhile trading in the EUR/USD has been choppy this morning. As expected the European Central Bank kept interest rates unchanged at 1.00 percent.  Cautiously optimistic comments from ECB President Draghi suggests that for the time being, the central bank is happy with last month's rate cut and liquidity measures and has no plans to ease again in the immediate future.  According to Draghi, there are "tentative signs of stabilization" in economy. This morning's European bond auctions show that their LTRO program has been successful but it would be remiss for him to not consider the "substantial downside risks" that still remain especially since the austerity measures by European governments are expected to pose a big risk to growth this year. Although the EUR/USD rallied because Draghi made no mention of more easing, its gains should still be limited because assuming that the central bank has shut the door on more stimulus because two small bond auctions went well,  is premature.